Results for search of category: Harlyn’s process

We use excess volatility as the hurdle rate by which equities must beat bonds, in order to be risk-efficient. In the US, it has just hit a new low going back to 1995. In the Eurozone, it is at a new 20-year low. Risk conditions have never been more benign. This means that they are very likely to deteriorate, possibly quite soon. We also think that central banks want this to happen – but not too much.  [Read More... ]

A Warning from History

There is a lot of concern that the ultra-low level of volatility may herald the death of the global equity bull market. But historically this has been a poor indicator (as have Tech bubbles). Two which have worked in the past are very low exposure to US investment grade credit and very high exposure to Eurozone Equities, both of which we have now. But the lead-time from here could be between 10-30 weeks  [Read More... ]

The Missing Piece of Chewing Gum

We don’t have the killer chart that says China is going to blow up or shoot the lights out. Our models are curiously inconclusive, which is unusual for China, and the underlying data are trading in a very narrow range. All of which makes us nervous.  [Read More... ]

Systematic Diversification

What’s the best way of allocating an equity portfolio between the equity indices of the US and another country? We use nine different styles to discover the best regime for each individual country over the last 21 years. Sometimes the quest is hopeless; there is no way of beating the US by diversifying into any Eurozone country. But for the rest of the world, there is nearly always a process which has worked.  [Read More... ]

Goldilocks returns

We stay with our early-year focus on volatility. Many commentators have focussed on the potential for political shocks, but we may be on the verge of an ultra-low volatility regime similar to the Goldilocks period of 2006 and 2007, consistent with abundant liquidity, accelerating growth and fiscal stimulus in many developed economies.  [Read More... ]

Low Hurdle

Many analysts cite a possible break in the regime of low volatility as a potential threat to the performance US Equities. They are right, but they only have half the story. A rise in equity volatility only matters if it is NOT accompanied by a rise in Treasury volatility. If it is, there is no change to the hurdle rate which determines the risk-efficiency of equities relative to bonds  [Read More... ]

Dodging a Three-Tonne Truck

Financials are rallying fast, driven by a significant decline in volatility in the US and the UK, which is exactly what our models expect. We don’t know whether this is justified by fundamentals, but we do know that every investor with an underweight position will have to consider reducing the risk relative to benchmark, sooner or later.  [Read More... ]

Mind the Gap

When Eurozone investors are a lot more bullish about global equities than their US counterparts, we start to get nervous. There are structural reasons for this behaviour, but it can be a sign that a correction in equity markets is on the way.  [Read More... ]

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